Land Title Blog: Agreement for Deed

You’re looking for a house to rent because you can’t afford to buy. Landlord comes to you and says: “You can rent to own this house. We will use your security deposit and first and last month’s rent towards the down payment if you decide to buy.”

Reasons you (the tenant) would do this:

· Lock in purchase price in a low market (while prices are down) so you can build equity

· Effort and love and work you put into a home will be yours to keep

· So long as you make the payments, the lease doesn’t expire and it’s the same monthly cost year to year (no rent increases)

Reasons your landlord thinks this is a good idea:

· Keep the tenant

· Tenant will upkeep the property better

· Stability of who’s in the property

· If tenant doesn’t pay, landlord doesn’t have to foreclose—he can just evict them

· With the recording of an Agreement For Deed, he can even get the tenants to pay for the taxes with homestead exemption and insurance

· Tenant is responsible for all costs of repairs and upkeep.

Sounds great? It may look like a Twinkie, but the filling is something you do NOT want to step in! Here’s why:

· You (the tenant) could be paying five years with the intention on getting the property…and at the end the landlord has issues—tax liens, judgments, landlord dies, and the list goes on and on….and on! All your hard work, effort, love, repairs go to waste.

· Your landlord would still have to foreclose an agreement to deed*. Don’t think that this type of transaction gets your landlord out of having to foreclose. A Three-Day-Notice isn’t going to cut it. (You might like this actually.)

In short, with an Agreement for Deed, you (the tenant) have all the risk with no security. And your landlord doesn’t have all the shortcuts he thinks are available to him. It’s not what you think it is. It’s not what your neighbor told you it is. It’s not what you heard on TV.

Do a Deed and Mortgage instead of an Agreement for Deed.* Have your landlord deed you the property so that you will own it. In exchange you will give him a promise to pay (known as a promissory note) together with a collateral document (known as a mortgage) giving him the right to take back the home if you don’t pay.

Reasons this is a better idea for you as a tenant:

· You won’t be a tenant anymore—you’ll be the owner.

· You’ll be the owner, so judgments and/or liens against the landlord, or death of the landlord won’t affect your ownership.

· Interest on homestead property is tax deductible—rent isn’t.

· Security, security, security, security so long as you make your payments.

Reasons this is a better idea for a landlord:

· The foreclosure process on a Deed and Mortgage is more standardized—less loopholes for you to use against him.

· The landlord no longer own the property; therefore, he has no liability for your grandmother who is visiting and broke her hip on the front steps of the property.